Yovich & Co. Market Update - 18 August 2020
Aug 18, 2020 | Commentary
18 August 2020
New Zealand Equities
COVID-19 Message Yovich & Co provide an essential service so is able to provide on going advice regardless of the Alert Level and place trades on market as usual.
In summary, last week the NZ50G saw 35 companies on the downside, 3 remained unchanged and 12 on the upside. No surprise in the fall of NZX50G last week with the COVID-19 announcement. The Reserve Bank of NZ announced last week that the Large Scale Asset Purchase (LSAP) programme has expanded from $60b to $100b. OCR to stay at 0.25% in accordance with the guidance issued on 16 March. The Reserve Bank (RBNZ) is to actively prepare a package of additional monetary policy tools, to be deployed if and when the outlook for inflation and employment requires additional stimulus. The RBNZ has released its new baseline scenario for the economy. Briefly, the outlook is positive compared to the May statement, NZ borders to be fully open in 2022, inflation to stay below the 1-3% target for longer (dropping below 1% in late 2020 increasing to 2% mid 2023), unemployment to peak at 8.1% (down from double fingers in the May Statement) gradually declining from 2021 to 5.8% by September 2023. Grant Roberson has announced that the Wage Subsidy will be extended while Auckland is in Alert Level 3, with an estimated cost of $510m, funding for this will be from the underspend in the existing wage subsidy allocation. Along with this the Mortgage deferral scheme is also extended out until 31 March 2021.
Mercury’s overall performance was strong in a testing 2020 financial year affected by drought across the Waikato catchment which impacted hydro generation from September, and the disruption caused by the COVID-19 pandemic. Earnings before interest, tax, depreciation, amortisation, and fair value adjustments (EBITDAF) down 2% at $494m (inline with guidance). Net Profit after tax (NPAT) was down 42% at $207m. EBITDAF and NAPT down versus FY2019 due to 376Gwh generation decrease, lower spot prices and Metrix divestment. The Turltea wind farm construction has been affected by COVID-19. Completion of the 33 northern turbines is expected in the final quarter of FY2021 and the 27 southern turbines in the second quarter of FY2020. Wind generated power will provide an alternative power source when dam levels are low. A final gross dividend of 13.05 cents with an ex-dividend date of 14 September is payable 30 September 2020, this is the 12th-consecutive year of ordinary dividend growth. Mercury’s FY2021 EBITDAF guidance has been set at $515 million, subject to any material events, significant one-off expenses or other unforeseeable circumstances including hydrological conditions. Guidance at the time of this report assumes 3,900GWh of hydro production. FY2021 ordinary dividend guidance is 17.0 CPS, fully imputed, representing a 7.6% increase on FY2020. Current Share Price: $5.01, EPS: $,0.24, PE ratio: 20.32, Gross dividend yield: 4.38%. Target price: $4.41 Rating: Neutral.
Tax paid profit for the half year ending 30 June 2020 was up 40.9% at $9.08m, total revenue up 16.9% at $38.4m. Operating earnings up 21.5% at $17.6m with FY2020 guidance range maintained between $30m to $33.5m. The pandemic has seen a lot of listed companies go hard and early with capital raising, with nearly $6b of equity raised. This followed through with a significant increase in secondary market trading for HY2020 with new highs in trading volumes, value and retail participation, $2.1b worth of trades took place between March and April, up 135% on same period in 2019. Gross dividend with an ex-dividend date of 3 September of 4.17 cents per share is payable 18 September 2020. Current Share Price: $1.61, EPS: $,0.06 PE ratio: 25.40, Gross dividend yield: 5.26%, Target price: $1.50, Rating: Neutral.
Seven year bond offer is now open, and closes 21 August 2020. The net proceeds of the offer will be used to repay a portion of Investore’s existing bank debt, providing further diversification of funding sources and extending the tenor of Investore’s debt. The offering is up to $75m with acceptance of additional $50m if oversubscribed. Interest rate is to be set 21 August (minimum interest rate of 2.40% per annum), issued 31 August and quoted on the NZX Debt Market on 1 September 2020 with the ticker code IPL020. Coupon payment to be paid quarterly, with bond maturing 31 August 2027.
Has confirmed it will close its Tauranga fish processing factory in NZ, thus laying off 66 employees. The closure is due to two issues; firstly, Sanford is processing less fish caught by other fishing companies due to the pandemic, secondly, the factory is no longer up to new earthquake standards. Due to these seismic issues with the building and surrounding areas, even when fish processing levels do increase it will not be viable to continue at the Tauranga site. Share price increased very slightly up 1%. Current Share Price: $6.02, EPS: $,0.40, PE ratio: 14.92, Gross dividend yield: 4.37%. Target price: $7.98, Rating: Outperform.
New Zealand Refining
Has released its 1H20 results ending 30 June 2020. Revenue down 30.6% at $119.1m, net tangible assets per quoted share equity share at $2.35, at a current share price of 68 cents, the Refinery is trading at a 73% discount to net tangible assets. The goal for Refinery is to operate at cash neutral in the current low margin environment, and until a decision a has been made regarding future structure of the company (simplified refinery, import terminal). Refinery and pipeline throughputs for the six months ended 30 June 2020 were 27% lower than the same period in 2019 and circa 40% lower from the time that the pandemic was declared. Throughput by the refinery was 15.4 million barrels (1H19: 21.2 million barrels) and pipeline 7.5 million barrels (1H19: 10.3 million barrels) in the six months ended 30 June 2020. Net debt as at 30 June was $250m reflecting cash neutral operation since April 2020, with no significant maturities until 2023. Clearer revenue guidance under both strategic models (simplified refinery, import terminal) is expected late 2020 (at the earliest). Current Share Price: $0.67, NTA: $2.35, Target price: $1.38, Rating: Outperform.
Underlying Tax paid profit for the year end 30 June 2020 was up 58% at $7.13m, revenue was 1.4% lower at $788m. PGW Chairman Rodger Finlay said, “While the result for FY2020 was not what we had targeted at the start of the year it nevertheless reflects well on the resilience of the business, our people and the support from our customers in what has been an extraordinary year. To deliver a trading performance similar to last year after the level of disruption that we have experienced is heartening and demonstrates that the business is in good health.” The Retail and Water Group operating EBITDA was up $2.7m at $34.7m. Trading for the Agency Group that incorporates the livestock, wool and real estate businesses was weighted to the second quarter of the financial year. Operating EBITDA was on par with last years performance at $15.7m. Mr Finlay said, “While there is scope for optimism with good demand and commodity pricing for New Zealand export produce, there remains a degree of caution with continuing volatility in global markets. PGG Wrightson plans to resume dividends when market conditions stabilize.
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